Following the budget announcement and consultation on proposals to reform taxation of termination payments, the government has now issued its response and put out for consultation detailed proposals on changes to taxation of termination payments.

Under these proposals, the £30,000 tax exemption for termination payments would remain, but both contractual and non-contractual payments in lieu of notice would be fully taxable.

Technical changes would be made to align the treatment of tax and national insurance contributions, and payments for injury to feelings (short of personal injury) would not come under the exemption for payments made on account of injury.

The proposals are out for consultation until 5 October 2016, with the expectation that any changes will come into effect from April 2018.